South Africa's economy

Miscalculation

An unexpected and embarrassing drop in inflation

ON THE face of it, South Africa just had a stroke of luck. Consumer prices have been rising painfully quickly since the rand slumped in 2001. The treatment, high interest rates, has hurt too. But on May 30th official figures showed a sudden dip in the inflation rate. Success for the stern central bank, which last year raised interest rates four times? Up to a point. A resurgent rand and falling food prices have, it is true, cut inflation. But the main reason for the fall is an admission by officials that they got their sums wrong.

Statistics South Africa, the government agency responsible for inflation data, had been making a mistake in calculating rents since at least February last year. Over time, the figures became increasingly inaccurate. At first, inflation was overstated by 0.1 percentage points, but by March this year it was 1.9 points out (see chart). Having been in double digits all year, inflation has dropped to 8.5%. By next year it may be within the central bank's target of 3-6%.

All's well that ends well? Er, no. The error has cost some South Africans dear. Many borrowers paid more for loans than they should have. High interest rates also helped push up the rand, hurting exporters. Some mining companies say their results will be grim because of the high rand. Several economic warning lights are now flashing. Business activity is sinking, so are confidence and car sales. Meanwhile GDP growth has slowed sharply.

Of course, not all of this can be blamed on the bad inflation sums. But plenty of it can. Consumers are fuming. Many companies, such as Telkom, a monopoly telecoms supplier, Eskom, a state-run energy company, and the post office, link their annual price rises to inflation. Opposition politicians say customers deserve a rebate.

The government, already likely to miss its economic-growth target of 3.3% this year, is becoming anxious. It is planning a “growth summit” at which it hopes to persuade its communist and trade-union allies that its liberal macroeconomic policies are the best means to faster growth and lower unemployment. Good ideas; but without decent statistics, how can ministers hope to prove it?